IntercontinentalExchange’s Derivative Volumes Suppressed In October

Global exchange operator Intercontinental Exchange Group (NYSE:ICE) experienced mixed volume trends on its trading platforms in the month of October. While commodity derivatives traded on ICE witnessed a 5% year-on-year hike, trading of financial products fell by 12% in October. ((Intercontinental Exchange Reports ICE and NYSE Volume for October 2015, ICE Press Release, November 2015)) ICE’s combined trade volume for all asset classes stood at 4.7 million contracts traded per day for October, which was a 2% annual decline. In the quarter ended September, the company reported a 3% rise in the combined ADV for all asset classes to 4.7 million contracts traded per day through the quarter. As a result, ICE’s transaction and clearing fees revenues were up by almost 12% y-o-y to $795 million. Trading and clearing revenues largely drove ICE’s 14% annual growth in net revenues to $1.15 billion in Q3.

We have a $235 price estimate for ICE, which is about 10% lower than the market price.

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Unimpressive Performance For Financial Derivatives

ICE’s equity options and cash equities are traded on NYSE, which it acquired in late-2013 to directly compete with NASDAQ OMX Group (NASDAQ:NDAQ). Both NYSE and NASDAQ have been facing headwinds due to increased competition and pricing pressure as they continue to lose market share to newer exchanges. BATS Global Markets has reported a gradual increase in its share in the U.S. equity options market. ^[1] Comparatively, NYSE’s share in this market through October fell by 230 basis points over the comparable prior year period to 20.5%. Correspondingly, trade volumes at NYSE were down by 30% y-o-y to just over 3 million contracts traded per day while the total U.S. options volume for all trading venues combined was down by 22% y-o-y to 14.7 million contracts traded per day. ^[2]

 Other financial products traded on ICE’s platform such as interest rate, FX and equity indices derivatives also witnessed a slowdown in trade volumes through October. Trade volumes of interest rate derivatives were low through Q2 and Q3 due to persistent low interest rates. After the Fed indicated that it will increase rates in late December or early 2016, trade volumes of medium and long-term interest rate derivatives dropped steeply to 162,000 contracts traded per day, a 22% annual drop. Short-term interest rate trade volumes were only about 3% lower on a y-o-y basis to just over 1.3 million contracts traded per day.

Total FX derivative trading was down by about 25% annually to about 33,000 contracts traded per day while equity indices derivative trading fell by over 30% y-o-y to 330,000 trades per day. Combined financial derivative trade volumes were about 12% lower on a y-o-y basis to just under 1.9 million contracts traded per day. In its Q3 earnings call, ICE’s management indicated that financial products may continue to endure stifled revenues until the European economy starts showing signs of recovery. ^[3]

Agricultural Products Lead Commodity Volume Growth

Commodity derivatives registered a growth of 5% y-o-y in October, with a total of 2.8 million contracts traded per day. Trading of sugar derivatives received a boost from the issues between sugar and corn sugar producers, resulting in a 72% annual growth in trade volumes to 161,000 contracts traded per day. ^[4] As a result, the average daily volume (ADV) of metals and agricultural commodities combined grew by an impressive 31% y-o-y to 360,000 contracts per day.

As volatility in oil prices subsided in October compared to the first half of the year, trade volumes of all oil product categories combined stayed flat over the prior year period at just over 1.3 million contracts traded per day. Similarly, ADV for natural gas, power and emissions derivatives combined were about 2% higher on a y-o-y basis to just under 2.5 million contracts traded per day. ^[2]

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1. BATS Global Market Reports October Volumes, Businesswire, November 2015 [↩]
2. Intercontinental Exchange Reports ICE and NYSE Volume for October 2015, ICE Press Release, November 2015 [↩] [↩]
3. ICE’s Q3 2015 Earning Transcript, ICE Press Release, October 2015 [↩]
4. Sugar companies and corn refiners settle corn syrup lawsuit, CNBC, November 2015 [↩]